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California PUC Releases Final Paper On Retail Choice

August 10, 2018

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Copyright 2010-17
Reporting by Paul Ring •

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The California PUC has released a final version of its paper discussing facing the retail sale of electricity in the state (known as the Green Book)

As previously reported when a draft was released, the paper is branded as a "call to action" to address various disparate, and often competing, policies adopted by the state over the past 20 years concerning restructuring and customer choice

The final report states, "California needs a clear long-term vision for its regulatory framework to address the state’s system requirements and policy goals beyond short-term fixes to stabilize immediate issues. The purpose of the paper is to serve as a catalyst to acknowledge vulnerabilities and to address them thoughtfully and strategically. New rules will need to be formulated by the CPUC under current law and -- in certain instances -- legislative guidance may be necessary. This paper serves as a call to action for the Legislature, our agency partners, the CAISO, stakeholders and communities to join in the conversation and develop a plan to protect against another crisis."

The report does not contain any policy recommendations. However, the report asks several questions, makes several observations, and sets forth next steps in California's examination of choice

"This paper sets the stage for a conversation among California energy policy decision-makers and stakeholders about the need to develop a plan to address the current shift in the evolving electricity market and the next steps in managing this transition. The paper provides a holistic and strategically agnostic view of the interdependent attributes related to customer choice," the report states

Questions raised by the final report include:

• With so many decision-makers entering into the market to provide electrical supply, how do we ensure coordination to provide all the energy needs for reliability purposes?

• Who will provide backstop procurement for resource adequacy if there are shortages of power needs identified in planning and a disaggregated set of electricity purchasers cannot fill the need?

• Who will coordinate supply and operations during local events where resources must come from outside the region? What is the responsibility of non-utility electricity suppliers to help meet unexpected contingencies?

• Are there adequate protections for all customers with the wider choices created by Direct Access, Electric Service Providers (ESPs), CCAs and Behind-the-meter (BTM) installations?

• Should there be a state entity that provides basic customer protections to customers of services that are either behind the meter or served by entities not historically under the jurisdiction of the CPUC?

• Who will serve as the provider of last resort and ensure that customers have access to power service if a load serving entity (LSE) fails?

• What protects customers who are not interested in choice, elect not to engage or unwittingly make the wrong decision or might otherwise be left behind?

• Who will execute the long-term contracts that can be used to finance construction of new facilities going forward?

• Should the incumbent electric utilities be allowed to compete with other market participants, or should they be limited to offering a platform for other electricity suppliers?

"Observations" made by the final report include:

• "It is critical that low-income programs continue with expanded customer choice offerings. California offers up to 35% discount on rates to residential customers through the CARE program, and other discounts such as the FERA program. California also offers unique programs for low-income customers such as the Energy Savings Assistance Program. Recently, California has included more efforts specifically toward “disadvantaged communities” to ensure that the August 2018 63 benefits of transportation electrification and distributed energy resources also reach those communities."

• "Standardized consumer protection materials for market participants interacting with energy customers is necessary for consumers to be well-informed about the options they have available and for market participants to compete on a level playing field. The CPUC currently plays a role in adjudicating customer complaints when IOUs and customers cannot resolve billing disputes; however we do not currently have similar authority over other LSEs"

• "Defining and designating Provider of Last Resort responsibilities is critical if a mass transition of customers becomes necessary. Electricity is a fundamental service and everyone in California should have the right to receive it. In California, the responsibility for the obligation to serve falls on the incumbent utility. However, California has not yet defined the components for a provider of last resort. In other jurisdictions that have expanded choice, the Provider of Last Resort is defined and fully compensated through rates paid by the customers"

• "The uncertainties of today’s market will need to be ameliorated by establishing an approach that keeps ratepayers on IOU bundled service indifferent to load migration while avoiding unfairly imposed costs. What if any LSE fails to meet its requirements and the IOUs had to quickly fill the gap as the provider of last resort today? Are there adequate customers remaining on IOU retail service for fair and equitable allocation of costs? Other jurisdictions have implemented different plans and structures to address this issue, which California decision-makers may wish to explore as more LSEs enter the market and customers leave their incumbent utility."

• "Over time California energy policy will require significant new investment in generation. The success of the California RPS program relied largely on the larger utilities to invest in projects by raising low-cost capital in financial markets, and then recovering costs through sales of electricity. This method of financing capital projects may be in jeopardy as more and more customers leave the IOUs. There is a question whether the necessary capital investment needed to decarbonize the electric sector to meet the state’s 2030 goals and beyond can be financed and, if so, delivered on time if the state transitions away from a few larger buyers to many small buyers."

• "Choice policies can cause customers to be unwitting participants. By either creating default enrollment in new programs or designing rate structures that result in cross-subsidization among rate classes, customers who are not realizing the benefits of a particular choice can be subject to its impacts without actually making a choice. Currently in California, customers can “opt-out” from becoming a CCA customer during formation. Since the IOUs typically provide the billing services, the role of the CCA as service provider may be cloaked to the ratepayer. The other markets with community choice aggregation have utilized a similar structure. While there are mandatory customer contacts prior to the transfer from the IOU, many customers may not understand the ramifications."

Under the next steps in the PUC's review of choice, Customer Choice Project Team will:

• perform a gap analysis which will examine the fundamental questions raised in the paper identify critical issues to resolve

• map current CPUC (and other agencies’) proceedings that address these issues

• identify the outstanding matters that require further analysis

• solicit public input for solutions that will lead to specific outcomes.

The Gap/Analysis and a Draft Action Plan for public comment are to be released in September

Link to final report

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